It's nothing, I'm sure. No really, I mean it. It's just that, well, I noticed that Google (NASDAQ:GOOG) insiders are continuing to drop shares on the public at a rate that boggles the mind. Here's just a brief peek at the latest tallies.
I bring it up only because I occasionally entertain the thought that Google has, in fact, destroyed the Internet. Well, not the physical Internet, mind you. Just the whole "looking for data" part of it that's key to Google's (alleged) information-based mission. The part that's held the key (so far) to its financial success.
Any of you try searching lately? Notice the astounding lack of quality across the board, even at revamped competitors like Yahoo! (NASDAQ:YHOO) and IAC/InterActiveCorp's (NASDAQ:IACI) Ask.com? I feel your pain. I, too, have spent hours stuck in the revolving door of link farms, splogs, and scraper sites. These sites look like they contain content, to judge by the blurb that appears on the search engine's results page, but when you see the actual web page, often there's nothing there but Google ads. (They can pull this off because of tricks like keyword stuffing and cloaking). If there is some content there, it's often recycled material from other providers, compiled by an automated process.
The jokers who create these sites have one goal: Trying to get you to click on a Google AdSense link.
Of course, such sites run contrary to Google's terms of service, but that hasn't stopped zillions of them from popping up. In fact, a search on "adsense ready web site" will give you a glimpse of the often-sleazy, bigger-than-a-cottage, scraper-site industry that's sprung up to try to capitalize on the phenomenon.
How Google killed the golden goose.
There are multiple problems here, all of which will be costly (if not impossible) for Google to eradicate. The first issue is good old-fashioned thievery.
Many of these spamsites are set up not just to catch us individual clickers, but also to facilitate larger-scale click fraud -- the act of paying people or assigning networks of "zombie" computers to click those ads thousands of times a day. Most of the public is entirely clueless about this situation, but people who pay attention to the space know this problem exists. Only its extent is unknown. Some say low teens as a percentage of clicks; others shoot for half. Of course, Google, which has a ton to lose if things are as bad as some outspoken Netizens believe, consistently lowballs the number.
Why the lack of clarity? Because the inner workings of Google's click-recognition procedures are opaque, and audited by ... Google! (Convenient, eh?) All anyone else can do make guesses -- some researched, some not.
The other enabler for the explosion of spam content and click fraud is Google's roughly 60% stranglehold on Web search, which gives it a pretty effective monopoly. That's why I find the "self-correcting market" arguments regarding click fraud more than a tad naive. Markets don't correct without competition and information, and I don't think there's enough of either here to make a difference. Yet.
Take AdWords advertisers who believe their results are being watered down by click fraud. Sure, they know they should bid lower on keywords to try to reflect that, but are they going to do it? Can they afford to, with so many others out there who bid high because (a) they don't know about the problem, or (b) they know much more than they should, and they're able to use click fraud to recoup some of what they're paying out?
I don't know the answers -- or even all of the questions. But if this problem is as bad as some fear, it could eventually put a major crimp in Google's entire revenue model, if not the entire pay-per-click business. I would argue that the explosion of link farms and spamblogs is pretty decent evidence that the click-fraud biz is not only alive and well, but also thriving at the expense of all of us. Except Google. For now, anyway.
No mas!
Whether or not you believe that the junk sites out there peddling AdSense ads are honest commerce or capitalizing on large-scale click fraud, there's little doubt in my mind that we've got Google to thank for it. There's simply no reason for people to set up these sites if they can't skim dough via third-hand revenue sharing enabled by Google's business model. With Yahoo! and others set to get in on the same gig, I don't think we'll see this trend abate.
I think that bodes for a return to the old days -- that the blogosphere that's being so rapidly diluted and co-opted by these AdSense shenanigans will become a lot less important. As a result, trusted information providers -- and some will doubtlessly be blogs -- will become more important. As they realize the power of their information, they'll be a lot less willing to allow Google to skim dollars off the content and reputation they've worked to build.
Moreover, targeted, structured data behind the scenes will be the new source of high-worth information, which means that businesses will be a lot more interested in the user-generated recommendations that Netflix (NASDAQ:NFLX) and eBay (NASDAQ:EBAY) offer their millions of customers. That'll be a lot more useful than what Google knows about 5,000 boy-crazy girls on MySpace or Blogspot who've been trading reviews on Justin's latest single.
In other words, while other Web companies are taking steps to shut Google out, Google's going to be left sifting the dregs, including all the garbage it helped create.
And I think Google knows that sooner or later, that well will be dry. This, I believe, is why Big Goo is so desperate to get you to use its new online spreadsheet in addition to Gmail, and chat, and its desktop snooping -- I mean search -- tool. It seems that Google is dying to know everything about you, because otherwise, it falls behind in the advertising war.
Google can do anything!
There's not much Google can do to stop the way information will be structured on the Net in the future (except perhaps to intercept it all via Wi-Fi?). But you'd think it could do more about the link farms, splogs, and click fraud. So why doesn't Google do more to put the brakes on this problem? Interesting question, because it makes a couple of assumptions that I find faulty.
The first is that Google can stop it. I don't buy that. I think when you pit a few hundred Google Smarty Pantses -- who are getting fat on stock options and gourmet meals at the Big Goo campus -- against many thousand enterprising schemers on the Internet, the battle will go to those hungry schemers every time.
Next, what makes you think Google wants to stop it? With AdSense providing so much of Google's revenue, I don't think Big Goo is in any hurry to flip over the rock and show everyone out there what's underneath. And that's where those stock sales come back in. Why do insiders continue to drop all those billions if the sky's the limit? Diversification? Ha! Go ahead, pull the other one.
I believe they're getting while the getting's good. The easy money may be drying up; the stock's still floating on air; they're not going to wait around and see what happens to their options once the herd figures that out. (Hey, what would you do?)
Don't believe the hype
If you're an investor in Google who reads the Fool, you've already seen that the valuation is apparently insane by any rational measure. Take a hard look at this problem, and a hard look at those insider sales, and then ask yourself why on Earth Google is spending time on doodads that no one needs, like an online spreadsheet. I think the answer is "because it needs news that looks like the future."
And Google gets it, oddly enough. How many confused reporters and bleary-eyed copy-desk editors does it take to convince the world that Google is about to kill Microsoft (NASDAQ:MSFT) on multiple fronts? How long before people begin to try matching up the headlines with reality? Take Big Goo's much-hyped forays into photos, email, chat, Wi-Fi, print ads, online classifieds, online word processing, and spreadsheets. What does it offer, and how does it make money?
That's not much of a concern for the press out there, which is blissfully unaware of its prime position as Most Likely to Be Head Dupe in Google's hype machine. All the newsroom knows is that Google is prime headline fodder, and more importantly, it's not Microsoft, so everything it does must be worthy of ink.
Foolish conclusions
The reality for investors is that Google is an advertising network -- a pretty good one, but just an advertising network. As other search providers like Microsoft have caught up and even surpassed Big Goo -- check out Redmond's new maps and local search -- it's become clear Google's not the only one that can do things right. That's good for most of us, because it means that Google can't actually wreck the Internet, at least not forever. But for speculators who concentrate more on the "gee whiz" than on the price they're paying for an at-risk bottom line, Google could wreck their portfolios quite efficiently.
At that point, those ever-more-diversified insiders that we discussed in the beginning of this story will look pretty clever indeed.
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At the time of publication, Seth Jayson had shares of Microsoft but held no positions in any other company mentioned. View his stock holdings and Fool profile here . Microsoft is a Motley Fool Inside Value recommendation. Netflix and eBay are Stock Advisor recommendations. (Whew.) Fool rules are here .
